Major Works and Consultation "Section 20" A Warning

[leaseholdanswers]

A recent decision has made a huge change in the interpretation of the law in Phillips & Ors V Francis

Since 1985, service charge expenditure has been subject to control

1 Fair and Reasonable in all respects in what is being done, how, when and it's procurement and delivery.

2 Expenditure over a certain amount- 1 applies generally but there are caps on the amount recoverable.

Since 1985 the trigger for 2 was where a landlord looked to expend an amount per flat(£50) or per block (£1000), whereupon he was required to consult.

Litigation and determination created context that abuse of this process, dividing up work to avoid consultation, could be recognised as such.

Amendments in CLRA 2002 changed 2 in that
a: long terms agreements of more than £100 and any one leaseholder contributing more than £100 in the year,
AND
b:for qualifying works of repair maintenance and improvement, £250.

Now the industry had adapted the earlier context treating expenses of more than £250 for any one leaseholder as being a trigger in the same way as £50 per unit or £1000.

The decision has challenged the notion of a trigger re defining £250 as any and all expenses related to qualifying works in the period eg the financial year for the service charge account.

That means that following the logic of the decision, every item of expenditure of Qualifying Works would be added up, not simply items or a project where one leaseholder would contribute £250 or more.. The practical implications are therefore staggering- at what point do you consult? Do you require a section 20 for light bulb?

Pending a review, a change in the regulations, or appeal, the exact implications will have to be considered in future decisions.

Two main points:

ARMA have released a briefing note on this http://www.arma.org.uk/doc/public/Ph...blic-brief.pdf

LEASE advice on Section 20- while this takes you through the mechanics it cannot now be taken as indicative as to when to consult or not.

Personally I consider it a flawed and ludicrous decision, a moments reflection over the conclusion should have shown the Chancellor that his thinking was flawed. I have written to him but I am not expecting a reply

[siva]

I wonder if leaseholders will now dispute service charges for all years that the CLRA 2002 legislation has been in force?

[leaseholdanswers]

Potentially- reading the later paragraphs it reads like " a chair has four legs, my dog has four legs, so my dog is a chair".
Where they were consulted it is likely fine but all the day to day works are potentially capped at £250.The daejan panel are likely thinking over this as the argument will be that "were leaseholders prejudiced?"

ARMA state that cleaning gardening etc are not included by I am not so sure as some works might come under it, and if the old definition are are out the window why not these too- after all he predicated the decision on the QW being poorly defined, if at all.

[andydd]

Who was it who said "the law is an ass" ?

[siva]

Where they were consulted it is likely fine but all the day to day works are potentially capped at £250.

But would and s20 consultation actually be valid? It should have included all works in the year.

ARMA state that cleaning gardening etc are not included by I am not so sure as some works might come under it, and if the old definition are are out the window why not these too- after all he predicated the decision on the QW being poorly defined, if at all.

Yes, I think you are right. The 2002 act defines qualifying works as “works on a building or any other premises”. I've looked up a dictionary defionition of "premises" and it says "A house or building, together with its land and outbuildings". So perhaps gardening and cleaning is qualifying works.

[aguila]

Apologies, am I being particularly dozy here, what has exactly has changed for "responsible" freeholders not trying artificially to break up projects into individual sub-projects (which seemed to be the case in the original decision)?

For example, we have a lift, let's say it breaks down, cost £100 (per leaseholder). A month later it breaks down again, costs another £100. A month late...you guessed it...another £100, which takes the annual cost of the lift over the £250...does that mean we have to consult as it is over the s.20 threshold? (i.e. are Qualifying Works now interpreted as "anything and everything done to the building, all lumped together as one"?

[ram]

we have a lift, let's say it breaks down, cost £100 (per leaseholder).
A month later it breaks down again, costs another £100. A month late...
you guessed it...another £100,

No, it cannot be an S20 requirement unless --

We are repairing the lift, it will break down this month, it will break
down next month and the month after that, so we need an S20.
That cannot be forseen, therefore it's not major works, it's
on going maintenance at less than £ 250 a time.

[leaseholdanswers]

[QUOTE=ram;423182
That cannot be forseen, therefore it's not major works, it's
on going maintenance at less than £ 250 a time.[/QUOTE]

Unfortunately RAM like it or not the scenario posted by Aquila is correct. The old definition" of qualifying works being " major works" has been turned on its head, as you will see if read the decision above.

While specialist advice needs to be taken in each case as the implications are yet to to be worked through at LVT or elsewhere, the practical rule of thumb is that if it is a qualifying work,then you have to think about consulting if any one lessee will contribute more than £250 at any time in the accounting period.

It sounds ridiculous but thats the logic the Chancellor of the High Court applied.

[siva]

Or you could apply to the LVT for dispensation.

Imagine how much they would like that! Expenditure for the year standing at £249.99 for each of 4 leaseholders. Anticipating having to buy a new light bulb!

[ram]

Much debate will follow, on here or elswhere.
But as you say, our total per year may be (true figure not divulged )
£ 10000 per year, including gardening, light bulbs, painting, etc
none of which would / could be Major works as previously defined.
ALL of which over the year cost more than £250 each leaseholder.

I take it that in future, if they have their way, an S20 will have to
list EVERYTHING, light bulbs and all, and go to the LVT before you can
issue the annual budget ( payable in advance ), so you need the
money in advance, but it's 10 to 12 weeks before LVT give their
decision ( therefore 3 months with no income, if like us, we have
no money left at the end of the financial year ).

We cannot survive if we have to wait 10 to 12 weeks for
the LVT, as we have to get the money in to pay insurance etc etc, 4 weeks after year end, but can't if we have to
"S20" the next years budget, and wait.

I still say that if a lift breaks down, and not forseeable, and
less than £ 250 each, it can't be major works. No answer
required on that, as it will all become clear as I read future
posts and legal websites, and I / we have to conform to the
law, and not our own definitions.

R.a.m.